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Strategic Business Reporting (International) · Discussion of issues in financial reporting

Alternative Performance Measures and Management Commentary for ACCA SBR

Updated 11 October 2026 · Fact-checked

An alternative performance measure (APM) is a performance figure not defined by IFRS, such as underlying profit or EBITDA. Management commentary is narrative that explains results and prospects. In SBR, you judge whether the measure is clear, reconciled and balanced, and whether the narrative helps investors rather than flatters management.

Understand Current Issues: Alternative Performance Measures and Management Commentary

Financial statements follow IFRS Accounting Standards, but companies also publish their own performance numbers. These are called alternative performance measures (APMs) or non-GAAP measures. Examples are EBITDA, underlying profit, adjusted earnings and free cash flow. They are not defined by IFRS, so two companies can calculate the same label differently.

APMs can help. Management may strip out one-off items so users see the trend in core trading. They can also mislead. If a company always removes costs such as restructuring, impairment or share-based pay, but never removes one-off gains, the measure looks better than reality. Prominence matters too. An APM shown in bigger type than the IFRS profit can give a biased picture.

Management commentary is the narrative that sits alongside the financial statements. The IFRS Practice Statement on Management Commentary is a non-mandatory framework. It says commentary should give users insight into the business: its nature, strategy, resources and relationships, results, and the factors that shape its prospects, including risks. It should be consistent with the financial statements and should be balanced, covering bad news as well as good. Its use is set by local law or regulators unless they require it.

Integrated reporting and sustainability reporting extend this narrative. Integrated reporting, from the IIRC framework now sitting within the IFRS Foundation, is built around a concise report on how an organisation creates value over time using several capitals: financial, manufactured, intellectual, human, social and relationship, and natural. It is aimed mainly at providers of financial capital. Sustainability reporting covers environmental, social and governance matters. The ISSB issued IFRS S1, which requires disclosure of sustainability-related risks and opportunities that could reasonably affect the entity's prospects, and IFRS S2, which deals with climate-related disclosures. They are applied only where a jurisdiction requires or permits them.

The exam rarely asks you to recite these frameworks. It gives a scenario, such as a company with a glossy adjusted profit figure, and asks you to assess whether the reporting is fair, useful and ethical. Your job is to give a reasoned judgement.

Key rules to remember

Typical APM adjustment bridge
APM = IFRS profit ± adjusting items
Always show the reconciliation from the IFRS figure to the APM. Without it, the APM cannot be checked.
EBITDA (common definition)
EBITDA = profit before tax + finance costs + depreciation + amortisation
Not an IFRS-defined term. Definitions vary, so state the one used. Impairment is sometimes added back too.
Qualities of a good APM
Clear label + reconciled + consistent + not more prominent than IFRS figures + explained
Use as a checklist when assessing any APM in a scenario.
Management commentary content elements
Business nature + strategy + resources and relationships + results + risks + performance measures
Use these headings to structure a commentary answer. It is a non-mandatory framework.
Integrated reporting capitals
Financial, manufactured, intellectual, human, social and relationship, natural
Six capitals. Value creation is the central idea.

How to solve Current Issues: Alternative Performance Measures and Management Commentary questions

Use this method for any question on APMs, commentary, integrated or sustainability reporting.

  1. 1Read the requirement. Decide if you must explain, evaluate, calculate an APM or advise on ethics.
  2. 2Identify the measure or report in the scenario, and note who the users are, usually investors.
  3. 3Recalculate the APM if figures are given, and reconcile it to the IFRS profit.
  4. 4Test it against the checklist: defined, reconciled, consistent, balanced, not too prominent.
  5. 5Look for bias: one-off gains kept in, costs repeatedly excluded, or bonuses linked to the measure.
  6. 6Apply to the scenario with figures and facts. Do not give generic theory.
  7. 7Conclude with a clear recommendation, such as what to disclose or change.
  8. 8Add professional skills: scepticism, ethics and a clear tone suited to the reader.

Quickest way: Reconcile, test, judge

When to use it: Use when time is short and the scenario shows an adjusted profit or a narrative report.

  1. Write the IFRS figure and the APM side by side, with the difference.
  2. List each adjustment and mark it as a genuine one-off or a recurring cost.
  3. Ask: would users be misled if this stood alone?
  4. Write the verdict in one sentence, then give two or three reasons from the scenario.
  5. Finish with a fix: reconcile, explain, apply consistently, give IFRS figures equal prominence.

Common mistakes in Current Issues: Alternative Performance Measures and Management Commentary

  • Saying APMs are illegal or not allowed.

    Students confuse non-IFRS with non-compliant.

    Fix: State that APMs are allowed when presented clearly, reconciled and not misleading. Regulators may add rules.

  • Describing the Practice Statement as mandatory.

    It sounds like a standard.

    Fix: Say it is a non-mandatory framework. Application depends on local requirements.

  • Mixing up integrated and sustainability reporting.

    Both include non-financial information.

    Fix: Integrated reporting explains value creation across capitals in a concise report. Sustainability reporting (IFRS S1 and S2) discloses sustainability risks and opportunities that affect enterprise value.

  • Listing theory without using the scenario.

    Students recall notes and skip application.

    Fix: Quote figures and facts, and say how they affect users' decisions.

  • Accepting all adjustments as one-offs.

    Students trust the label management gives.

    Fix: Check whether the item recurs each year. Recurring costs are normal trading and should stay in.

  • Ignoring ethics when bonuses depend on the APM.

    The calculation takes all the attention.

    Fix: Flag the incentive to manipulate and refer to integrity and objectivity.

Worked examples

Example 1

Zeta reports IFRS profit before tax of $48 million. Its press release highlights 'underlying profit' of $63 million. The difference is: restructuring costs $9 million (similar costs arose in each of the last three years), impairment of goodwill $4 million (first occurrence) and a gain on sale of property of $2 million, which was kept in. Reconcile to underlying profit and evaluate it.

Show the solution
  1. Start with IFRS profit: $48 million.
  2. Add back restructuring $9 million, giving $57 million.
  3. Add back impairment $4 million, giving $61 million.
  4. The property gain of $2 million is left in. Underlying profit as reported is therefore $61 million, not $63 million, so the press release figure of $63 million does not reconcile to the items given. The $2 million gap is unexplained.
  5. Evaluate: restructuring recurs every year, so it is arguably a normal cost and should not be excluded. Goodwill impairment is non-cash and first-time, so exclusion is more defensible if explained.
  6. The gain was kept in, which is biased. A one-off gain should be removed if one-off costs are removed. Removing it would give $59 million.
  7. Recommend reconciling fully, explaining each item, treating gains and losses consistently, and giving the IFRS profit equal or greater prominence.

Answer: The listed adjustments give $61 million, so $2 million of the $63 million is unreconciled. The measure is biased because recurring restructuring costs are excluded and a gain is retained. A consistent figure excluding the gain would be $59 million, with restructuring left in at $50 million as the stricter view.

Example 2

Explain to the board of Orla, a listed manufacturer, how management commentary differs from the financial statements and why integrated reporting might help investors.

Show the solution
  1. Financial statements are prepared under IFRS and report past transactions in a set format. Management commentary is narrative that explains them and looks forward.
  2. The Practice Statement is a non-mandatory framework. Orla should follow it only if local rules require it or the board chooses to.
  3. Commentary should cover the nature of the business, strategy, resources and relationships, results, risks and performance measures. It should be balanced and consistent with the financial statements.
  4. Integrated reporting shows how Orla creates value over time through the six capitals, such as manufactured capital (plants), human capital (skills) and natural capital (resource use).
  5. This helps investors see links between strategy, risks and long-term performance, which the statements alone do not show.
  6. Caution: the report must be balanced and not marketing. Any APMs used should be reconciled to IFRS figures.

Answer: Management commentary explains and adds context to the financial statements. Integrated reporting extends this by showing value creation across six capitals. Both help investors if they are balanced, consistent with the financial statements and reconciled where APMs are used.

Exam tips

  • Always reconcile an APM to the IFRS figure before you comment. Marks are given for the calculation and the judgement.
  • Test each adjustment: is it truly one-off, and are gains treated the same way as losses?
  • Use precise words: the Practice Statement is non-mandatory, and IFRS S1 and S2 apply only where a jurisdiction requires or permits them.
  • Link to professional skills: show scepticism about management's labels and give a clear, reasoned recommendation.
  • If a bonus depends on the APM, raise the ethical risk briefly.

Practice questions from Discussion of issues in financial reporting

Current Issues: Alternative Performance Measures and Management Commentary: frequently asked questions

What is an alternative performance measure in SBR?

It is a performance figure not defined by IFRS, such as EBITDA or underlying profit. You must judge whether it is clearly labelled, reconciled to IFRS and free from bias.

Is the IFRS Practice Statement on management commentary mandatory?

No. It is a non-mandatory framework. Whether a company applies it depends on local law, regulators or its own choice.

What is the difference between integrated reporting and sustainability reporting?

Integrated reporting is a concise report on how an organisation creates value over time using several capitals. Sustainability reporting, such as under IFRS S1 and S2, discloses sustainability-related risks and opportunities that could affect the entity's prospects.

What do IFRS S1 and S2 cover?

IFRS S1 sets general requirements for disclosing sustainability-related risks and opportunities. IFRS S2 deals specifically with climate-related disclosures. Use depends on what a jurisdiction requires or permits.